Game sales light up holidays for desperate retailers

Summary:Now that the Christmas selling season is over, it&#039;s safe to proclaim the big retail winner under the tree: interactive games. Sales of video-game software and hardware are expected to hit a record $5.

Now that the Christmas selling season is over,
it's safe to proclaim the big retail winner under
the tree: interactive games. Sales of video-game
software and hardware are expected to hit a
record $5.4 billion for 1997, thanks mainly to
blockbuster holiday sales. The computer-game
business surged as well, powered in part by
swift-selling cheap computers. There were a lot
of winners, but not everyone participated in the
flood of demand for interactive entertainment.

Industry executives and analysts had
expected a strong Christmas, mainly because of the
increasing market penetration of the latest game consoles
from Nintendo and Sony. Several million of both the
Nintendo 64 (introduced last year) and the Sony
PlayStation (launched in 1995) are now hooked up in
American homes.

But few expected the intensity of the sales surge the
industry has experienced throughout 1997, and especially
late in the year. The surge affected both video games -
those sold for TV-display consoles like the Nintendo 64 -
and PC games, which are typically played via CD-ROM on
a standard computer.

"This whole year has been a surprise," says Ed Roth,
president of Leisure Activities Tracking Services for NPD
Group, a market research firm. "Nobody would have
predicted it would do this well."

NPD projects that while the toy industry in general will
have grown 8 percent to 10 percent in 1997 by the time all
sales are tallied, the video-game business will have
expanded by up to 45 percent.

As for the Christmas season, "It's way bigger than we
thought," says John Taylor, analyst with Arcadia
Investment. "The numbers are off the charts."

Actually, the numbers aren't in yet. Most research
firms, retail chains, hardware makers and software
publishers say they won't begin the painstaking chore of
scoring the holiday sales season until this week.
Nonetheless, a smattering of clues provide a preview of
what those numbers might show.

Here are some preliminary conclusions:

Virtually all Nintendo titles sold well.

While there are hundreds of games made for the Sony
PlayStation, there are only about 40 available for the
Nintendo 64. So when new games come out, buyers flock
to the stores and drive sales of many of the $50-and-above
titles to more than 1 million copies.

(In a post-Christmas promotion expected to be
announced Monday, Nintendo is dropping the suggested
price on seven different games to $39.99.)

Backed by a Taco Bell tie-in, Nintendo's "Diddy Kong
Racing" sold an estimated 425,000 to 460,000 copies in
the first two weeks of December alone, according to the
NPD Group. "Mario Kart 64," meanwhile, a rare racing
game available on the Nintendo 64, sold about 140,000
copies during early December. (Later figures aren't
available.)

For an industry in which sales of 100,000 to 200,000
units signal profitability, such figures are impressive.

One possible exception to the rule: Interplay's "Clay
Fighter." Already the title is being discounted to about
$39.95 - a good $10 to $20 below typical Nintendo
game prices. "That's a really bad sign," says Kraig Kujawa
of Computer Gaming World, an industry publication.

Not too many big-name entertainment companies are
deeply involved in the field. But two that are -
DreamWorks and Fox - found a couple of their most
prominent titles faltering late in the year.

DreamWorks' "The Lost World: Jurassic Park" for the
PlayStation, for instance, ranked only No. 33 among video
games during the first two weeks of December, according
to the NPD Group. And Fox's "Croc," a PlayStation title
for which the studio had high hopes, was ranked down at
No. 47.

To be sure, those titles were released earlier in the year
and performed better back then. Moreover, DreamWorks
has yet to release a separate Jurassic game (this one on PC)
that's expected to sell well. But many had expected the
existing Jurassic Park game still to be stomping the
competition.

Productivity and education titles didn't sell nearly
as well as games.

No one can attest to this trend any better than
Broderbund Software. Its "Riven," the sequel to
ultra-popular "Myst," outdistanced even the rosiest of
projections. The company has shipped more than 1 million
copies of the hit game since its late-October release,
roughly doubling many analysts' forecasts. The intricate
puzzle game typically sells for about $40.

But weakness in Broderbund's education ("Carmen
Sandiego") and productivity ("PrintShop") products offset
much of that gain, and analysts downgraded their ratings of
Broderbund stock after company officials in December
acknowledged the growing weakness. Unlike with games,
freshness doesn't count for much in evergreen categories
like education and productivity, so consumers apparently
feel less need to rush out and buy the newest software
upgrades.

"Productivity and education have been declining for
most of 1997," says Leonard Brecken, analyst with
Oppenheimer & Co. "They all claim the budget PCs will
help them, but I haven't seen any evidence of it."

Among the other companies expected to have been
hurt over Christmas in these categories: Walt Disney, which
already has scaled back its development of "edutainment"
products to reflect the market dynamics.

In the high-profile battle among interactive
football games, there were two winners.

Both Acclaim's "NFL Quarterback Club 98" and
Electronic Arts' "Madden 64" badly wanted to be No. 1 on
the Nintendo game field. But the former, on the strength of
ground-breaking graphics, has begun pulling away, finishing
November as the second biggest selling Nintendo title, vs.
No. 9 for Madden. Still, the strong showing by Electronic
Arts, which is new to the Nintendo platform, illustrates how
much opportunity Electronic Arts, a sports-game specialist,
may have for growth on that console.

Toy makers continued to climb the
interactive-game charts.

Only a couple years ago, the likes of Mattel and
Hasbro were mere blips on the interactive screen. Now
they are major forces.

In November, the last month for which data are
available, Mattel had the No. 4 seller among PC games with
"Barbie Magic Hair Styler" and Hasbro had five of the Top
20 PC titles, led by its new "Monopoly Star Wars."

Sega's downward spiral continued.

The venerable video game company found its Saturn
console less appealing than ever among consumers. Some
toy stores, such as some Kaybee outlets, didn't carry the
item at all. Others simply placed it on the low-volume
bottom row of retail shelves.